How Employer-Sponsored Health Insurance Differs at Big and Small Businesses

employer-sponsored health insurance

Many people are aware that big companies are much more likely than small businesses to offer employer-sponsored health insurance to their employees. The Medical Expenditure Panel Survey (MEPS), an annual effort to query nearly 40,000 establishments, conducted by the Federal Government’s Agency for Healthcare Research and Quality shows that only 34.8 percent of private sector establishments with fewer than 50 employees provided workers with health care coverage in 2013, as compared with 95.7 percent of those with 50 or more workers.

Bigger companies are also more likely than smaller ones to offer health care coverage to retirees. The 2013 MEPS reveals that only 1.3 percent of business locations with fewer than 50 workers offered health insurance to retirees under the age of 65, and only 2.3 percent offered it to older retirees. By contrast, 23.5 percent of private sector establishments with 50 or more workers provided health insurance to retirees under the age of 65, and 19.5 percent offered it to retirees over 65.

Similar patterns are present with part-time workers. As the most recent MEPS shows, 21 percent of part-time employees at business locations with fewer than 50 workers that provided health care coverage were eligible for that coverage, as compared to 32 percent of private sector establishments with 50-plus employees.

But establishment size doesn’t just affect the provision of employee health insurance, it also affects the characteristics of that insurance.

Self-insurance is more common at larger business establishments. The MEPS shows that only 13.2 percent of places of business with fewer than 50 workers insured themselves in 2013, as compared with 64.6 percent of those with more than 49 employees.

Multiple plan offerings are more common at larger establishments. According to the MEPS, only 20.2 percent of business locations with fewer than 50 employees offered more than one health insurance option to their workers. But 68.9 percent of private sector establishments with 50 or more people on the payroll did so.

Waiting periods are more common at larger establishments. In 2013, 86.1 percent of business locations with at least 50 workers had a waiting period before new hires were eligible for health care coverage, the MEPS shows. Only 62.7 percent of places of business with under 50 employees had this delay.

Individual premiums are slightly higher in smaller establishments, but family premiums are lower. In 2013, the average individual premium at a place of business with fewer than 50 people on the payroll was $5,628, as compared with $5,556 at business locations with at least 50 people employed, the MEPS reveals. By contrast, the average family premium was $14,787 at the smaller-sized establishments and $16,224 at the larger-sized ones.

Co-pays and coinsurance are higher in smaller establishment plans. As the MEPS shows, 70.6 percent of business locations with fewer than 50 employees had a co-pay for a physician’s office visit, versus 63.6 percent of private sector establishments with at least 50 people on the payroll. Moreover, the average co-pay was larger at the smaller places of business, $26.75, as compared to $23.77 in 2013. Coinsurance costs were also slightly higher at smaller establishments. The average coinsurance rate in plans that required coinsurance was 21.3 percent at places of business with fewer than 50 people on the payroll, as compared to 18.9 percent at those with at least 50 workers.

In short, smaller establishments are less likely than their bigger counterparts to offer health insurance to their full and part-time workers and retirees. They are also less likely to self-insure, to offer multiple insurance plans, or make new hires wait before they are eligible for coverage. Small establishments’ individual premiums are slightly higher, and their family premiums are slightly lower, than those of large establishments; and their co-pays and coinsurance rates are larger.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

14 Reactions
  1. Small businesses simply cannot afford all the fees. They are trying to make ends meet and is trying to save anything they can to expand.

  2. An alternative to the to Group Health Insurance would be to cancel your plan and give employees money to purchase their own health insurance. There is a lot more choice on the individual health insurance marketplace. Many small businesses are paying 20%-60% less than they would on group health insurance.

    The new book, “The End of Employer-Provided Health Insurance” explains how employers can save money and how the way most americans get health care now is changing rapidly. I would highly recommend it for any small business.

    • Be careful when advising an employer to “pay” for individual health insurance for employees – they cannot simply give an “allowance” to go purchase, or they are in violation of ERISA guidelines. Some small employers establish a Self-Insured Medical Reimbursement plan (IRS section 105) to reimburse the cost of these premiums for individuals, but with the Affordable Care Act implementation and the IRS imposing greater scrutiny over this way of doing it the small employer utilizing this method potentially can leave their business open to large fines depending on final rulings by the IRS on this.

  3. Hi Renee,

    Thanks for additional comment. Yes, employers do need to make sure they are compliant with federal and medical privacy laws. A detailed overview of this can be found at

    The recent guidance highlights the importance of compliance for premium reimbursement arrangements.

    Also, an alternative strategy would be to provide employees with taxable stipends so they do have not to worry about compliance.

    Best, Leah

    • Actually, the IRS has repeatedly said that paying for employee’s individual medical insurance premiums pre-tax is no longer an option see In fact, they are even regulating after tax stipends basically (in not so many words) directing employers offering some form of taxable payment for medical insurance to add this money to base salary rather than listing it as a separate line item within payroll. I have been tracking Zane benefits along with many others and continue to have a difficult time understanding how this Section 105 plan loop hole is possible. The IRS has made very clear that employer provided pre-tax individual health insurance premium payments are simply not an option.

  4. A comment about this statement: “As the MEPS shows, 70.6 percent of business locations with fewer than 50 employees had a co-pay for a physician’s office visit, versus 63.6 percent of private sector establishments with at least 50 people on the payroll.” This seems to imply that the larger companies, having no copay for office visits, just pick up the full cost, and therefore, the plans with copays are “worse”. However, copays are generally a better benefit because they typically bypass the deductible and are not subject to coinsurance. So if an employee’s plan does not have copays for office visits, that likely means they have to pay the full cost of the office visit under their deductible, then pay 10%, 20%, 30% or 40% of the cost for each visit after they meeting their deductible (if they ever do). Copays are much better, and generally are only in the $20 – $40 range.

    • Hi Nicole,

      You are right to some extent, But it isn’t quite that simple. Whether or not there are co-pays or co-insurance all depends on the plan or plans the employees have to choose form within the carriers group plan or plans the employer chooses to offer. I’ve seen choices within some carriers group plans that offer plans that are duel tier consisting of different co-pays as well as plans with no co-pay but instead co-insurance. I’ve enrolled small businesses in group plans that offered individual employees and their dependents a choice.

  5. This article implies that it is possible for small employers to offer more than one insurance carrier for health insurance. I have never found this to be the case. Insurance companies simply will not sell insurance to employers that want to provide a second carrier option. For example, my less than 100 employee groups can not offer United and Carefirst or Carefirst and Kaiser. They must choose one carrier only but can offer 3 different plans offered by the same carrier. This has been consistent for many years. I’m based in DC and most of my clients are based in the DC, Maryland, VA area but I have some under 50 based in other states (Pennsylvania, California, Arizona, New York, Massachusetts). Please comment if you know something about groups with under 100 employers being able to offer more than one carrier. Has anyone ever seen this happen and if so in what state?

    • I’ve never seen it happen at smaller businesses. Most of the facts in this article my be irrelevant now anyway since the stats are from 2013, before the ACA changed everything. Many smaller groups who did offer coverage no longer do, since everyone is guaranteed issue in the individual market now & their employees may qualify for subsidies.

      • Hi Renee,

        I don’t think we can assume that everything has changed. Just because some kind of insurance is available doesn’t mean employers have stopped offering it to employees. Speaking as a business owner, the reasons to offer insurance coverage through an employer-based plan aren’t just about whether employees may have some other option. There are other reasons to offer it, one of the biggest motivations being competitive advantage compared with other employers.

        – Anita

    • Hi Julie, Thanks for the comment. Your insights are very valuable!

      In all fairness, I am not sure that Professor Shane is trying to imply anything. Rather, he simply is making observations about the current state of things based on the MEPS study, and pointing out the difference between large corporations and small companies when it comes to employer-provided insurance options.

      According to the MEPS study, apparently 20.2% do or did offer multiple plans. Unless there’s something up with the MEPS data, it does seem possible for some to do that, or at least it was in 2013….

      – Anita

      • Anita – I’m not “assuming” – everything has changed. It has!

        I understand that there are many good reasons to offer health insurance that go beyond price, but talk to a very small business whose rates skyrocketed this past year and they’ll tell you that they had to make some very difficult decisions. I don’t know what type of business you have, but in some of my smallest groups who had been hanging on trying to pay for their employees’ insurance – consideration of the impact of letting employees shop the marketplace if they were subsidy eligible had to be looked at. Many let go of the group & made up the difference for employees by increasing payroll to help them cover their individual policies. Every one of my small business was looking at all of these options – even if they chose to keep their group plans for other reasons – like attracting top notch talent. Those entities were generally small groups with highly paid employees. My smaller groups with lower wage employees had to let their people go – economically it was the best decision once we did the math, even if they increased payroll slightly to accommodate the change.

      • I realize there are many small businesses such as those you represent that have had to face difficult choices, Renee, and for some, employer-based insurance was the trade-off. I have deep deep empathy for those in that situation. I’ve had times when my business has struggled and I’ve had to make hard choices, too.

        – Anita